September, 2023
Cash and Short-Term Liquidity Weighting: ↑ The allocation to highly liquid assets (cash, commercial paper and government bonds) increased from 7.91% to 9.63%. This mainly reflected lower allocations to T1 capital, corporate bonds and corporate hybrids; which was partly offset by increased allocations to ABS.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and T2 capital) decreased from 42.49% to 40.35%. A tale of two halves in global credit with credit spreads firmer over the first half of September before closing wider month-on-month as concerns over higher government bond yields and rates volatility came to the fore. In the first half, the fund took profits into firmer markets, reducing allocations to EUR denominated corporate bonds and corporate hybrids; this has since been reallocated to USD denominated T2 capital in the start of October on the wider credit spread bias. Domestically, credit spreads remained resilient and continued to firm over the month. In terms of new issuance there was a range of deals from Australian corporates, including Westpac, Suncorp T2 and WestConnex in AUD, and Santos, NBN and BHP in USD.
Interest Rate Duration Position: ↑ IRD positioning increased from 0.86 to 1.00 years. Positioning reflected the continued sell-off in global government bond rates. Nominal yield increases were matched by real yield rises - reflecting the resilient global economic data releases. Market sentiment reflected the investors' acceptance of central bank commentary of higher cash rates for longer. Further hawkish comments by global central banks only pointed to potential upside risks for further tightening. While monetary policy decisions in AUS, US and UK saw cash rates steady, the ECB tightened by 0.25%. In addition to terminal cash rates increasing over the month, the extent and timing of rate cut expectations were delayed, contributing to steepening yield curves. Consequently, our IRD positioning reflected overall moves and sentiment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Flyer-edited-High-Income-Fund-September-2023.pdfAugust, 2023
Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 13.84% to 7.91%. This mainly reflected increased allocations to T2 capital, corporate bonds and corporate hybrids; which was partly offset by lower allocations to T1 capital.
Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate bonds and subordinated debt (corporate hybrids and T2 capital) increased from 36.59% to 42.49%. Global credit markets softened over the month, partially unwinding some of the solid credit spread performance achieved two months earlier. In contrast, domestic credit markets continued to firm over the month, despite the modest pickup in new issuance. Improved relative value in offshore markets provided the opportunity to increase allocations to Australian corporate bonds and subordinated debt denominated in USD and EUR. The fund also participated in a new green corporate hybrid deal from Volkswagen in EUR which has performed very strongly in secondary trading. Domestically, notable new deals include senior unsecured bonds from Westpac, CBA, ANZ and NBN Co, and T2 capital from UK Bank Lloyds.
Interest Rate Duration Position: ↑ IRD positioning increased from 0.82 to 0.86 years. Intra-month IRD positioning was actively managed to take advantage of the volatility in the rates market. The trading range of the US 10-year government bond was higher than the Australian counterpart and as such our trading activity was skewed towards the US. Overall, both markets ended the month higher than where they began and consequently our positioning also increased. Global bond markets were driven by strong economic data, however, volatility sharply increased following a relatively weaker interest in US primary bond issuance. Global inflation continues to trend downwards, but services inflation proves to be stubborn. Concerns around China’s economy and their property sector remained elevated, while the lack of official stimulus compounded the sentiment.
Residential Mortgage-Backed Securities (RMBS): ↑ Weighting to RMBS securities decreased from 18.02% to 18.32% over the month. Public structured credit market yields continued to tighten over the month of August, with the strong offshore bid maintained in the senior and higher rated mezzanine tranches. Margins across lower credit grade portions of the capital structure also tightened, especially around the A and BBB rated tranches, as investors began to compete for supply as margins continued to tighten. Issuers continue to utilise the cheaper funding margins to issue transactions at more economic levels. This has led to a large number of new transactions seeking to price over the period across a wide range of subsectors including regional bank trades, both prime and non-conforming RMBS, and asset backed securities.
With respect to market performance, Prime arrears as reported by S&P’s SPIN index improved 1bp over the month of July to 0.96%. Nonconforming arrears weakened slightly, widening 16bps to 3.63%. Both results remain very strong in comparison to both market expectations and historic index levels.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/High-Income-Fund-August-2023.pdfJuly, 2023
Cash and Short-Term Liquidity Weighting: ↑ The allocation to highly liquid assets (cash, commercial paper and government bonds) increased from 12.15% to 13.84%. This reflected lower allocations to corporate bonds, bank T1 and ABS public; which was partly offset by higher allocations to bank T2 and ABS private.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 37.00% to 36.59%. July was a solid month for global credit as the risk sentiment continued to strengthen. This was partly attributed by the improved macroeconomic outlook in the US and positive developments in the US regional banking sector. As such, Financial sector credit spreads outperformed as they continue to recover post the March banking crisis, with ongoing strong outperformance from bank capital instruments (T2 and AT1). Noteworthy global issuance included a senior deal from Fifth Third Bancorp -- the first issuance from a pure US regional bank since the collapse of Silicon Valley Bank -- which has performed very strongly in secondary markets. Domestically, improved risk sentiment and muted new issuance saw credit spreads firm over the month, with notable outperformance from bank T2.
Interest Rate Duration Position: ↑ IRD positioning increased from 0.70 to 0.82 years. Volatility was divergent between Australian and US government bonds, with the trading range in the Australian 10 year remaining meaningfully higher than the US. During the month, the respective 10-year government bonds reached decade highs before contracting. Drivers of government bond volatility included a hawkish fed and a surprisingly strong ADP employment report. A weaker than expected inflation print and a cash rate increase of 0.25% as expected, led to the retracement of US bonds. Australian inflation was slightly lower than expected but printed a strong unemployment rate of 3.5%. However, the biggest driver of Australian bond volatility was the Bank of Japan’s decision to increase the Yield Curve Control band of the 10-year bond to maximum of 1%. IRD positioning was influenced by these events.
Residential Mortgage-Backed Securities (RMBS): ↓ Weighting to RMBS securities decreased from 18.38% to 18.02% over the month. Public structured credit market yields began to tighten over the month of July, with reports of a strong offshore bid returning to the market. This was especially prevalent in the senior portions of the capital structure in prime transactions, with the bid tightening credit margins across the sector. Tighter yields continue to make transaction more economic for issuers, leading to a substantial amount of primary deal flow looking to price in markets over the next month, including several regional bank trades, along with both prime and non-conforming RMBS.
With respect to market performance, Prime arrears as reported by S&P’s SPIN index improved 3bps over the month of June to 0.97%. Nonconforming arrears also improved, tightening 16bps to 3.47%. Both results remain very strong in comparison to both market expectations and historic index levels.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/High-Income-Fund-July-2023.pdfJune, 2023
Cash and Short-Term Liquidity Weighting: ↑ The allocation to highly liquid assets (cash, commercial paper and government bonds) increased from 9.77% to 12.15%. This largely reflected lower allocations to ABS, RMBS and bank T1; partly offset by higher allocations to bank T2.
Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) increased from 35.15% to 37.00%. The improved risk sentiment saw global credit spreads firm over the month, with bank capital instruments (T2 and AT1) continuing to outperform. The exception was GBP assets which underperformed due to macroeconomic concerns from high inflation. The silver lining was Lendlease buying back £125 million of their senior unsecured Sterling bond maturing in 2033 - a high conviction line in the portfolio - at a premium of more than 10% to market value. Domestically, risk sentiment and credit spreads were also firmer which resulted in solid outperformance from new issuance. Notable new deals include T2 issuance from Westpac and QBE and corporate issuance from Endeavour Energy and Australian Gas Infrastructure Group. New deal participation resulted in increased allocations to T2's.
Interest Rate Duration Position: ↑ IRD positioning increased from 0.32 to 0.70 years. Economic data releases highlighted the strength of global economies. Most notable was the accelerating UK inflation figure in addition to a strong employment report. Australian unemployment decreased unexpectedly to 3.6%, while the fair work commission increased the minimum award wages by 5.75%. The 3rd estimate of the US GDP came in higher than expected, revealing the resilient economy. The FOMC paused rate hikes, but with a hawkish stance. Remaining global central banks hiked rates with the RBA, BoC and BoE surprising the market to varying degrees. Consequently, Australian government bond rates underperformed US and ended the month breaching 4%. In line with market movements, IRD positioning of the fund was increased accordingly.
Residential Mortgage-Backed Securities (RMBS): ↓ Weighting to RMBS securities decreased from 19.32% to 18.38% over the month. Public structured credit market yields remained in line over the month of June, after having tightened at the end of May as foreign investor interest started to return. The tightening in yields makes issuing transactions more economic for issuers. This has bought more primary deal flow to public markets including two new bank transactions, and several nonconforming and CMBS transactions.
Secondary markets remain moderately active, with good transaction volume reported from each of the broking desks. With respect to market performance, Prime arrears as reported by S&P’s SPIN index weakened 6bps over the month of April to 1.01%. Nonconforming arrears also weakened slightly, increasing 3bps to 3.73% as reported by S&P for the March period. Both results remain very strong in comparison to both market expectations and historic index levels.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/High-Income-Fund-June-2023.pdfMay, 2023
Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 11.67% to 9.77%. This largely reflected increased allocations to corporate bonds, bank T1 and corporate hybrids; partly offset by lower allocations to bank T2 and RMBS.
Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) increased from 31.35% to 35.15%. The cautious market sentiment from April improved over the month of May as concerns over US regional banks subsided and the optimism of a US debt ceiling deal grew. This paved way for the continued recovery in bank capital instruments (T2 and AT1) which strongly outperformed corporate bonds. It also provided us the opportunity to take profits in bank T2 and increase allocations to corporate bonds. Domestically, credit spreads firmed over the month in sympathy with global risk sentiment. The return of Australian corporate issuance continued in May with deals from Ausnet, Transgrid and QIC Town Centre Fund in AUD and Melbourne Airport in EUR.
Interest Rate Duration Position: ↓ IRD positioning decreased from 0.39 to 0.32 years. Economic data over the month of May was mixed. Labour data in Australia and in the US alluded to softening conditions while the headline inflation numbers surprised to the upside. The silver lining in the US was the weakening ‘core services ex housing’ figure, a sign of weakening demand. RBA, FED, RBNZ, ECB and BOE raised interest rates by 25 basis points – with the RBA’s action somewhat surprising the market and consequentially increasing the expected terminal rate from 3.7% to 4.1%. Global Risk sentiment improved as the month progressed, with US regional bank sector concerns easing and the US debt ceiling negotiations being resolved in principle. Portfolio positioning reflected the market conditions with only minor adjustments.
Residential Mortgage-Backed Securities (RMBS): ↓ Weighting to RMBS securities decreased from 22.32% to 19.32% over the month. Public structured credit market yields began to tighten into month end, in line with other credit markets. Primary market issuance was less active in May than April, but include both a new bank transaction and regional bank transaction amongst other non-conforming programs. Secondary markets were more active over the month as investors looked away from the limited primary market supply to increase allocation to the sector. With respect to market performance, Prime arrears as reported by S&P’s SPIN index weakened 2bps over the month of March to 0.95%, with Bloomberg reporting prime arrears for April remaining inline with the prior month at 0.93%.. Nonconforming arrears improved 29bps to 3.70% as reported by S&P for the March period, with Bloomberg’s arrears index for nonconforming loans also improving 26bps for the month of April to 3.01%. Both results remain very strong in comparison to both market expectations and historic index levels.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/High-Income-Fund-May-2023.pdfApril, 2023
Cash and Short-Term Liquidity Weighting: ↑ The allocation to highly liquid assets (cash, commercial paper and government bonds) increased from 7.12% to 11.67%. This largely reflected lower allocations to bank T2, corporate bonds & RMBS which was partly offset by higher allocations to bank T1 and ABS.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 37.35% to 31.35%. Following the March banking crisis which saw the collapse of a couple of US regional banks and Credit Suisse, April felt like a relatively quiet month. Reduced volatility and solid first quarter earnings from the US major banks supported the continued recovery in global credit spreads over the first half of the month. This allowed us to take profits on bank T2's and crystalise the strong capital gain on our CS senior debt positions. Sentiment turned around in the second half of April, as concerns over US regional banking deposit flows reemerged. Ultimately, this led the collapse of yet another US regional bank, First Republic Bank, on the 1st of May. While credit spreads have underperformed into the start of May, the sell-off has been modest compared to the moves witnessed in March. In terms of new issue supply, there was a pickup of new deals from Australian corporates including Worley and Stockland in AUD and Transurban, Sydney Airport and Telstra in EUR. This continued into the start of May with new deals from Australian Financials in AUD, including NAB, BEN and Suncorp issuing senior paper and ANZ issuing a T2.
File:March, 2023
Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 10.91% to 7.12%. This largely reflected increased allocations to bank T1, bank T2 and RMBS and lower allocations to corporate bonds and ABS.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 38.62% to 37.35%. After a relatively quiet start to the month, global credit spreads sold-off sharply toward mid-March, as concerns over a potential "banking crisis" riled financial markets. The forced merger between Credit Suisse and UBS saw the write-down of around US$16 billion worth of CS AT1's but resulted in a very handsome capital gain to our high conviction CS senior debt position. Note: we did not have exposure to CS AT1's. Unsurprisingly, bank capital securities (i.e., T2 and T1) underperformed during this period, which provided us an opportunity to pivot back into global assets – this was largely expressed through adding to USD T2/T1's issued by strong Australian financial institutions while reducing allocations to AUD corporate bonds. While the outlook remains uncertain, the markets consider the impacts of the March "banking crisis" to be largely contained, which has led to a modest recovery in global credit spreads at month-end. New issuance activity was relatively quiet over the month as volatility remained high.
Interest Rate Duration Position: ↓ IRD positioning decreased from 0.58 to 0.38 years. Financial stability concerns were the major drivers to volatility over the month - the collapse of Silicon Valley bank in the United States and the forced merger between Credit Suisse and UBS being the main culprits. Concerns around contagion, in the US, were quickly thwarted by guaranteeing the noninsured deposits of SVB, however, global confidence suffered in the aftermath. As a result, the volatility of global government bonds was unsurprisingly high for the month of March - with absolute levels ending the month sharply lower than where they began. Most notably, market's view on AUS terminal cash rate decreased from 4.2% to 3.5%, with the expectation of a rate cut by the end of 2023. In line with market movements, portfolio interest rate duration was decreased.
File:February, 2023
Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 14.93% to 10.91%. This reflected increased allocations to corporate bonds, ABS and RMBS and lower allocations to bank T2 and bank T1.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 40.42% to 38.62%. The tremendous credit spread rally since November 2022 took a breather in February as the market focus shifted back to higher terminal interest rates and sticky inflation. Global credit spreads closed mixed month-on-month with USD slightly wider while EUR was slightly firmer as European recession probability forecasts declined. Domestic credit was a relative outperformer having lagged the recent global rally. This supported our tilt back towards into AUD credit (notably corporate bonds and bank T2) as we continued to take profits in global T2's. Domestically, we saw the return of T2 issuance with ANZ issuing an inaugural 15-year (callable after 10 years) bond with a fixed coupon of 6.736%. This was followed up by T2 issuance from Suncorp and NAB, with all three deals performing well in secondaries. In early March, CBA issued a 15-year (callable after 10 year) T2 with a fixed coupon of 6.704% which is also performing well.
Interest Rate Duration Position: ↑ IRD positioning increased from 0.52 to 0.58 years. Both the volatility and the end of month government bond yields were higher for February. Much to the market's dismay, global economic data had continued to surprise to the upside. Most notable of these surprises were the US unemployment number, which unexpectedly fell to 3.4%, along with upside surprises to US inflation data. Consequently, central bank commentary was hawkish due to the risk of persistent inflation on the back of a resilient consumption economy. As a result, terminal cash rates increased which flowed through to higher government bond yields. Australian rate movements were correlated to global government yields for the most part and as a result, our positioning was increased slightly.
Residential Mortgage-Backed Securities (RMBS): ↑ Weighting to RMBS securities increased from 20.75% to 23.04% over the month. Public structured credit market yields tightened significantly over the course of the month, after having lagged the tightening experienced by other credit markets in January. Senior AAA markets tightened by as much as 40 basis points, with middle mezzanine (A/BBB rated) and junior mezzanine markets (subinvestment grade rated) tightening as much as 80 basis points. Dealer inventory levels remain very low as market participants continue to seek out good quality paper. Lenders saw these significantly tightened yields as an opportunity to issue into the market, with a significant amount of dealflow within the current primary market pipeline across several different asset classes expected over the next month.
With respect to market performance, Prime arrears as reported by S&P’s SPIN index weakened 11bps over the month of December to 0.76%, with nonconforming arrears weakening to 3.20%. Both results remain very strong in comparison to both market expectations and historic index levels.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/High-Income-Fund-February-2023-2.pdfJanuary, 2023
Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 17.86% to 14.93%. This reflected increased allocations to bank T2, bank T1, corporate bonds and ABS which was partly offset by lower allocations to RMBS and corporate hybrids.
Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) increased from 37.10% to 40.42%. Investment grade credit spreads rallied strongly over the month, recording the best January performance in the last decade. Global credit firmed for a fourth consecutive month with subordinated debt outperforming once again. The market easily absorbed the deluge of new global issuance including new USD T2 issues from NAB and Macquarie which resulted in increased allocations to bank T2. Domestically, credit also firmed over the month but lagged the global rally. Consequently, we are seeing improved relative value in domestic credit and have expressed this through increased allocations in corporate bonds. New domestic issuance was relatively quiet in January. In early February, ANZ issued an inaugural 15-year (callable after 10 years) T2 with a fixed coupon of 6.736%. This has allowed us to take some profit in global T2's and rebuild our domestic T2 book. The bond has since performed strongly which signals the market is supportive of this new longer tenor structure.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/High-Income-Fund-January-23-4.pdfDecember, 2022
Cash and Short-Term Liquidity Weighting: ↑ The allocation to highly liquid assets (cash, commercial paper and government bonds) increased from 14.28% to 17.86%. This mainly reflected lower allocations to ABS, Bank T1, Bank T2 and corporate bonds.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 38.76% to 37.10%. Credit spreads generally tightened over the month, typical of the reduced activity and low liquidity period leading into the holidays. Global credit firmed for a third consecutive month with continued outperformance from subordinated debt. This supported of our tilt towards Australian Bank T2 issued in USD, which still provides attractive relative value in our view. Similarly, domestic credit also firmed over the month with notable outperformance from subordinated debt. There was limited new issue supply in December. Credit spreads remain firm in 2023 despite the deluge of new global issuance. Notably, we participated in USD T2's issued by NAB and Macquarie which further increased our allocations to Bank T2. In contrast, new domestic issuance remains quiet with the only notable deal being CBA's 3-year and 5-year senior unsecured notes.
Interest Rate Duration Position: ↓ IRD positioning decreased from 0.85 to 0.82 years. Government bond volatility was relatively muted over the month of December, however this was to be expected given the festive season. The first half of the month was dominated by central bank pivot talk and the need to decrease the pace of rate hikes. Global momentum saw rates on a downward trend and as such our positioning was accordingly reduced. The shock of the month came in the form of Bank of Japan's Kuroda, who surprised the entire market by increasing the trading range for the Japanese 10 year bond. Volatility spiked and the Australian 10 year bond sold off circa 20bsp in a single day, which motivated us to opportunistically increase IRD slightly on the day.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/High-Income-Fund-December-22-1.pdfNovember, 2022
Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 16.96% to 14.28%. This reflected increased allocations to bank T2, corporate bonds and ABS public; partly offset by lower allocations to ABS private, corporate hybrids and RMBS.
Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) increased from 35.11% to 38.76%. Global credit spreads rallied strongly over the month, firming for a second consecutive month. Domestic credit also closed firmer, although the path was fraught with uncertainty as Australian Bank T2's soldoff at the start of the month following APRA's letter on capital calls. This provided an excellent opportunity for us to increase allocations to Australian Bank callable T2's issued in USD at very attractive valuations - these securities have since performed strongly and are now trading back inside of pre-APRA levels. At the end of the month, ANZ issued a 10Y bullet T2 in USD which has also performed strongly. On domestic new issuance, there's was a slight pickup in supply although it remains largely skewed towards bank senior unsecured transactions . Of note, both Westpac and NAB issued 3-year and 5- year senior unsecured notes.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/High-Income-Fund-November-22-1.pdfOctober, 2022
Cash and Short-Term Liquidity Weighting: ↑ The allocation to highly liquid assets (cash, commercial paper and government bonds) increased from 12.05% to 16.96%. This largely reflected lower allocations to corporate bonds and subordinated debt, and both public RMBS and ABS; partly offset by increased allocations to ABS Private.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 39.46% to 35.11%. Global credit spreads continued to sell-off in the first half of October, breaching YTD wides again, before closing firmer for the month. The second half was supported in part by some market stability as systemic concerns over the UK bond market and rumours of a Credit Suisse failure subsided. Domestically, credit was resilient in the first half as global credit sold-off, providing the catalyst for us to reduce allocations to AUD corporate bonds & sub-debt. This was well timed as new bank senior and T2 issuance in the second half resulted in domestic credit spreads gapping wider towards month end. This included ANZ's senior unsecured notes and CBA's T2, which priced respectively 15bps and 30bps wider than the secondary curves. T2 performance deteriorated further in November as APRA published a letter highlighting their concerns around uneconomic calls in capital securities (T2 and AT1).
Interest Rate Duration Position: ↓ IRD positioning decreased from 1.22 to 1.17 years. Government bond volatility remained elevated through the month of October – with the US bond market being more volatile than our domestic market. The political resignation of Liz Truss in the UK contributed to global market sentiment, with the markets reacting positively to the appointment of Rishi Sunak as the UK PM. The major surprise domestically was the Q3 CPI outcome, which prompted an upward revision to CPI and terminal cash rate forecasts. Global central bank rhetoric was more balanced rather than for a pivot and as such, our positioning was influenced by the real yields that were on offer – favouring US government bonds over domestic.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/High-Income-Fund-October-22.pdfSeptember, 2022
Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 15.09% to 12.05%. This largely reflected increased allocations to both public and private RMBS and lower allocations to ABS private and corporate bonds.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 41.30% to 39.46%. The market weakness from mid-August continued over September as credit spreads meaningfully underperformed, breaching the year-to-date wides experienced in July. The sell-off was driven by aggressively higher government bond yields as the market continued to price in more hawkish central banks and increased recession risks. Notably, the sell-off accelerated in the second half of the month as extreme volatility in UK gilts and rumours of a Credit Suisse failure spooked markets. Domestically, T2 credit spreads were resilient and outperformed on a relative basis. This enabled the slight pick-up of new T2 issuance, including: ANZ's A$900m T2 (7 years to call) at a fixed coupon of 6.405%; Challenger's A$400m T2 (5 years to call) at a fixed coupon of 7.186%; and AMP's A$200m T2 (5 years to call) at a floating-rate coupon of 3-month BBSW plus 465bps. Participation in these deals saw our allocation to T2s increase slightly while our allocation to corporate bonds reduced modestly as we took profits on various airline bonds which have outperformed on a relative basis.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/High-Income-Fund-September-22.pdfAugust, 2022
Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 17.61% to 15.09%. This largely reflected increased allocations to ABS, RMBS and Corporate bonds with reduced allocations to Bank T2 and T1.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 42.74% to 41.30%. Monthly global credit spread performance was mixed with modest outperformance in AUD and USD while EUR underperformed. Volatility was significant in offshore credit markets which continued to rally into mid-August before selling-off again to month-end as the market narrative returned to higher recession risks and hawkish central banks - similar to the sell-off we experienced in June. Domestic credit markets experienced more stability with notable outperformance in Bank T2s following the glut of T2 supply around the end of July. Over the month we reduced allocations to Bank T2 and increased to AUD Corporates. New domestic issuance was relatively modest and concentrated around senior bank issuance in the 1-3 year maturity bucket.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-25.pdfJuly, 2022
Cash and Short-Term Liquidity Weighting: ↑ The allocation to highly liquid assets (cash, commercial paper and government bonds) increased from 14.60% to 17.60%. This largely reflected lower allocations to corporate bonds and RMBS private which were partly reallocated to bank T1 and RMBS public.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 46.63% to 42.74%. Global credit spreads rallied over the month, recovering about half of the spread underperformance from June. European credit markets outperformed strongly, supporting our tilt toward EUR securities and provided an opportunity to take some profits across senior financial and T2 paper. These funds were largely rotated into USD securities, notably bank T2, as the relative value across offshore markets normalised. Domestic credit markets outperformed modestly as new issuance activity remained muted. The exception was bank T2 spreads which underperformed off the back of NAB's A$1.25 billion dual-tranche fixed and floating rate T2 deal which priced at month end. Of note, the deal attracted significantly greater demand in the fixed line given the attractive coupon of 6.322%. Domestic bank T2 issuance continued in early August, with ANZ's A$1.75 billion dual-tranche fixed and floating rate T2 deal which also drew significantly greater demand in its fixed line which priced at a coupon of 5.906%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-24.pdfJune, 2022
Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) reduced from 21.33% to 14.60%. This was largely allocated to bank T2 & T1, RMBS private and ABS public as we continued to increase risk across the portfolio.
Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) increased from 43.79% to 46.63%. Global credit spreads underperformed (widened) over the month as recession headlines moved to the fore with the market continuing to navigate through the impacts of the rising interest rate environment and inflationary pressures. Domestically, credit spreads widened for a fifth consecutive month while both USD and EUR credit markets closed at YTD wides. We continue to tilt towards offshore markets, particularly in EUR, which we view as providing exceptional relative value. Notably, we increased allocations to Bank T2 in EUR and rotated the corporate bond book from AUD to EUR. Amidst the general market weakness, there was a positive development for our high conviction position in Crown hybrids (CWNHB) which will be redeemed at $102.75. Given the market volatility, new issuance activity was muted over the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/High-Income-Fund-Jun-22.pdfMay, 2022
Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) reduced from 26.48% to 21.33%. This was allocated to subordinated debt (corporate hybrids and bank T2), bank T1 and RMBS as we increased risk across the portfolio. Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) increased from 43.18% to 43.79%. Compositionally, we reduced allocations to corporate bonds (-2.93%) as we took profits in shorter dated paper and rotated into higher yielding subordinated debt (+3.54%) in EUR and USD. Global credit spread performance was mixed over the month as markets continued to navigate through the impacts of the rising interest rate environment and inflation and growth concerns.
Domestically, credit spreads widened for a fourth consecutive month. Offshore, EUR and USD credit markets reached YTD wides during the month, although a risk rally in the 2nd half saw USD close firmer month on month. New issuance was relatively modest and centered around financials. Three Australian major banks issued senior unsecured paper (ANZ/Westpac in AUD and NAB in USD) and Macquarie Bank issued a Tier 2 in AUD. Notably, Air New Zealand priced an inaugural AUD transaction with a dual tranche 4 and 7 year senior unsecured deal.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-22.pdfApril, 2022
Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 27.60% to 26.48%. Compositionally, our cash holdings increased (from 4.26% to 12.57%) due to a reduction in government bond holdings (from 11.18% to 2.35%). By sector, we increased allocations to corporate bonds and ABS and reduced allocations to bank T1, corporate hybrids and bank T2.
Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) increased from 41.66% to 43.18%. Credit spreads materially widened over the month as sentiment continues to be dampened by rising government bond yields. Domestically, credit spreads widened for a third consecutive month while USD/EUR credit spreads gave back most of the gains achieved in the 2nd half of March and are now nearing YTD wides. At the start of April we took profits across subordinated debt, particularly in USD and increased
allocations to senior ranking corporate bonds with longer dated maturities. We also continued to allocate to EUR corporate hybrids issued by global companies. Despite the challenged market conditions there was an interesting selection of new corporate issuance, mostly in the USD space. Notable issuances include CSL's inaugural US$4 billion muilti-tranche offering and a contingent of new issuance from Aussie miners including: South32, Fortescue and Mineral Resources. In early May, ANZ Bank issued 3 and 5 year senior unsecured notes in domestic markets.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-20.pdfMarch, 2022
The portfolio is invested across a range of Private ABS/RMBS Facilities (50.48%), Public ABS/RMBS Facilities (36.29%) and Structured Secured Facilities backed by loans (5.35%). The weighted average credit rating of the portfolio sits at BB+, a weighted credit duration of 1.42 years and a pre fee running yield of 5.90%.
The fund’s monthly return was impacted by a widening in public RMBS. This market was dragged wider in sympathy with global credit as the war in Ukraine saw investors sell credit across the board. The Realm Strategic Income Fund maintains a 36.29% holding in public securities which were impacted as a consequence. While this detracted from the total return, the strong yield generated by the portfolio offset this weakness and still delivered a solid positive number for the month. Our allocation to cash and public assets sits at approximately 44%, the intention is that these assets are moved into private facilities as transactions close and settle. We anticipate that settlements over the coming month will lead to an increase in total portfolio running yield and an increase in privateassets.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Strategic-Income-Fund-Enduring-Units-Mar-22-Good.pdfFebruary, 2022
Cash and Short-Term Liquidity Weighting: ↑ The allocation to highly liquid assets (cash, commercial paper and government bonds) increased slightly from 35.44% to 35.66%. Compositionally, the allocation to cash reduced (- 2.73%), offset by an increased allocation to both commercial paper (+1.92%) and government bonds( +1.03%).
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds, corporate hybrids and bank sub-debt decreased from 35.33% to 34.91%. Credit markets sold off for a second consecutive month as concerns over rising government bond yields gave way to Russia/Ukraine war tensions towards month-end. We continue to rotate from AUD to EUR and USD securities - notably sub debt (corporate hybrids and Bank T2) and Bank T1 - as they meaningfully underperform AUD assets on a relative basis. Given the market volatility, new corporate issuance was relatively muted during the month, adding to the increasing volume of deferred supply. The only issuance of note was NAB's A$ dual-tranche 3 & 5 year senior unsecured bond. While the market outlook remains highly uncertain, we remain well positioned to deploy excess liquidity if credit markets continue to sell off. Interest Rate Duration Position: ↓ IRD positioning decreased from 1.07 to 1.02 years. The month of February commenced with general hawkish commentary from FED members. Rhetoric centered around the possibility of a double hike in March – which were supported by strong US labour and CPI numbers. Major global central bank narrative stated inflation risks were skewed to the upside, which also contributed to rates volatility. However, over the month, sentiment deteriorated as US intelligence of an imminent Russian invasion of Ukraine proved to be accurate causing market turmoil. As rates rallied domestically, we opportunistically reduced IRD.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-16.pdfJanuary, 2022
Cash and Short-Term Liquidity Weighting: ↑ The allocation to cash, commercial paper and government bonds increased slightly from 35.37% to 35.44%. Compositionally, the reduction in cash holdings (-1.93%) was reallocated to commercial paper (+2.02%), while government bond holdings were largely unchanged.
Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate and sub debt increased from 32.99% to 35.33%. Credit markets weakened over the month (and continued into February) as the sell-off in global government bonds dragged credit spreads wider. USD and EUR credit markets gapped wider, reversing the outperformance experienced in December, while AUD outperformed relatively. There was an uptick in issuance in the first half as market sentiment held firm. Notably, CBA and Westpac issued 5-year senior unsecured bonds domestically, while NAB issued multi-trance senior unsecured and Tier-2 bonds in USD. We are starting to see improved relative value, particularly in USD and EUR credit markets and have been selectively adding risk accordingly.
Interest Rate Duration Position: ↑ IRD positioning increased to 1.07 from 0.99 years. Inflation data released in the US and Europe surprised to the upside, prompting hawkish commentary from central bank members. Narrative in the US was centred around predicting the number of rate hikes and market pundits' opinions ranged from 4 to even 6 rate hikes in 2022. Aggressive rate hike opinions and the formal end of US QE in March caused significant volatility in Australian markets. Opportunities were once again presented, and the fund extended IRD on the back of external market drive.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-15.pdfDecember, 2021
Cash and Short-Term Liquidity Weighting: ↑ The allocation to cash, commercial paper and government bonds increased from 23.34% to 35.37%. This was largely driven by increased cash holdings as we reduced allocations across all sectors except ABS.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate and sub debt decreased from 38.55% to 32.99%. Credit markets firmed over the month with credit spreads recovering around half of the losses experienced in the November sell-off. This reflected easing concerns over the Covid Omicron variant as hospitalisations remained low despite the surge in daily cases. We took this opportunity to take some profits across both corporate bonds and sub debt and remain cautious as covid restrictions globally return once again. Looking through the ongoing Covid uncertainty, we remain defensively positioned into 2022 as we anticipate the expectations of rising interest rates globally will be a drag on credit spread performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-11-1.pdfNovember, 2021
Cash and Short-Term Liquidity Weighting: ↓ The allocation to cash, commercial paper and government bonds decreased from 29.38% to 23.34%. Compositionally, the cash position declined from 8.24% to 3.08% and the government bond holdings declined from 15.64% to 13.55%. This was largely re-allocated to corporate bonds and sub debt.
Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate and sub debt increased from 31.82% to 38.55%. Credit markets remained weak over the month and sold-off towards month-end as the volatility in bond yields gave way to concerns over the new Covid Omicron variant. Despite the weak sentiment, primary issuance picked-up as issuers aimed to transact before the December holidays. As such, numerous deals priced with significant new issue premium (discount) and our defensive positioning allowed us to add risk opportunistically. Such deals include a US$300 million 10-year bond from the Port of Newcastle, a £250 million 12-year green bond from Lendlease, and a A$500 million 5.3-year call subordinated note from Ampol. Other notable deals include a A$400 million 5.5-year call tier 2 from the Bank of Queensland, which priced with a modest new issue premium and repriced both the outstanding regional and major bank tier 2 bonds wider (much like the Bendigo & Adelaide Bank senior deal last month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-10.pdfOctober, 2021
Cash and Short-Term Liquidity Weighting: ↑ The allocation to cash, commercial paper and government bonds increased from 27.57% to 29.38%. Compositionally, the cash position declined from 22.57% to 8.24% as we materially increased our government bond holdings from 0% to 15.64%. This position was put on at month end following the aggressive rates sell off in Australia and has resulted in solid positive performance for the start of November.
Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate and sub debt increased from 30.96% to 31.82%. We continued to increase our allocation to AUD corporate bonds and reduced our exposure in sub debt. Credit markets weakened over the month as bond yields continued to rise globally, particularly in Australia. Concerns over contagion risk from the Chinese property sector subsided but continues to simmer in the background. Weak market sentiment meant domestic issuance was modest with the most notable a $865M 5-year senior bond from the Bendigo & Adelaide Bank. The bond priced with a significant new issue premium (discount) which resulted in the underperformance of not only existing regional bank senior bonds, but also repriced weaker major bank senior bonds and Tier 2 bonds.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-9.pdfSeptember, 2021
Commercial paper and government bonds increased from 26.21% to 27.57%. This was mainly attributed by solid net inflows and reduced allocation to AT1, sub debt, and both private and public RMBS.
Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate and sub debt increased from 29.89% to 30.96%. Credit markets were generally weaker, especially over the 2nd half of the month as it faced headwinds from rising bond yields and the uncertainty of possible contagion from the troubled Chinese property developer, Evergrande. This led to a relative under performance of BBB corporates which presented attractive relative value for us to increase our allocation to corporate bonds.
New issuance volumes were robust with notable domestic deals from supermarket retailer Woolworths who issued a dual tranche 7-year and 10-year sustainability linked bond (SLB) - the deal was more than 4x over-subscribed and it was the 2nd domestic SLB issuance following Wesfarmer's inaugural SLB in June. Qantas also issued a 7-year bond which was close to 4x oversubscribed. There was also further M&A activity with both Ausnet Services and ALE Property Group receiving takeover bids. From a bonds perspective, the likely outcome of each transaction will be on opposite ends, with the Ausnet deal likely to result in multi-notch ratings downgrades and material capital destruction while the ALE deal will present strong upside. The fund had no exposure to Ausnet and will benefit from our ALE holdings. Interest Rate Duration Position: ↓ IRD positioning decreased from 0.86 to 0.80 years. Concerns around non-transitory inflation, announcement of imminent taper by global central banks and continued rebound in global demand contributed to the reduced IRD positioning.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-7.pdfAugust, 2021
Cash and Short-Term Liquidity Weighting: ↑ The allocation to cash, commercial paper and government bonds increased from 20.12% to 26.21%. This was mainly attributed by solid net inflows into the fund and profit taking across corporate and sub debt.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate and sub debt decreased from 34.32% to 29.89%. Credit markets were modestly firmer over the month, with relative outperformance observed from higher beta sectors such as sub debt and high yield. As such, we continued to take profits across T2 and AT1 securities, particularly in USD. New issuance volumes picked up during the month with the most notable being NAB’s A$2.75 billion 5-year senior unsecured bond - the first domestic senior unsecured issue in benchmark size from an Australian major bank in nearly 18 months. Domestically, we also saw CBA issue a A$1.5 billion 10-year (non-call 5-year) T2. New deal roadshows also picked up towards the end of the month which should translate to a healthy supply of new issuance for September.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-6.pdfJuly, 2021
Interest Rate Duration Position: ↓ IRD positioning decreased from 1.23 to 0.96 years. A significant rally in the Australian 10-year government bond yield, from 1.49% to 1.17%, along with the upside risks posed by inflation expectations and imminent QE tapering contributed to the reduced IRD positioning.
Residential Mortgage-Backed Securities (RMBS): ↓ Our RMBS allocation decreased over the month from 27.6% to 25.6%. This was driven by a reduction in public securities, at the same time there was a slight increase in portfolio exposure to private securities vs last month’s allocation. Over the month, there was a significant amount of issuance with 12 new transactions coming to market. This comes as issuers take full advantage of the tight market levels available in the public market. The issuance spanned multiple asset classes both domestically and in New Zealand, with a regional transaction, multiple prime and nonconforming transactions, several consumer loan programs and an auto program. The supply was met with significant demand, with deals continuing to close days earlier than anticipated and investors receiving a fraction of their bids as coverage rates sat in the 3X and 4X range for most tranches. The strength in demand saw markets continue to tighten materially over the month, pushing certain parts of the RMBS complex into what we would view to be expensive territory.
We continue to see a strong relative value opportunity within private securitised assets versus public markets and will look to skew the portfolio in this direction over coming months. With respect to market performance, the S&P arrears index (SPIN) for May weakened by 1bp to 0.95%, a level that we would deem to be benign. Additional Tier 1 (AT1) Exposures: ↑ AT1 exposure increased from 12.96% to 14.25%. The average time to call in the AT1 book continues to reduce as we reduced holdings in AT1's with longer call dates and rotated into AUD AT1's with shorter call dates. The supply/demand dynamics of the AT1 market were supportive over the month with no new issuance. Asset Backed Securities (ABS): ↓ Our ABS allocation decreased from 7.22% last month to 5.52%. This was driven by the refinancing of one of our private transactions, reducing its exposure to the portfolio as the assets are termed into the public market. This exposure is expected to increase again over the next few months. Exposures within pools continue to perform very well against expectations, and due to the shorter nature and higher yields offered by the assets in comparison to other sectors, continue to be highly sought after by market.
Targeted risk across the Fund: ↓ Targeted portfolio risk decreased from 1.21% to 1.0% as we continued to reduce credit duration and interest rate duration. The fund remains compliant with the Portfolio ESG risk limits.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-5.pdfJune, 2021
Cash and Short-Term Liquidity Weighting: The allocation to cash, commercial paper and government bonds decreased from 23.46% to 19.73%. The fund experienced solid net inflows during the month and we increased allocations to subordinated debt, RMBS private and ABS private. Corporate & Subordinated Debt Allocation: Weighting to corporate and sub-debt increased from 27.67% to 32.51%. Credit markets firmed slightly over the month with a more constructive tone observed in offshore credit markets. We took this opportunity to reduce credit duration in the corporate book by taking profits on USD corporate bonds with longer-dated maturities and reinvesting into Tier 2's with relatively shorter call dates, such as Regional Bank T2's in AUD and Major Bank T2's in USD.
This resulted in a higher allocation to sub-debt while the corporate bond allocation declined slightly after taking into account the participation in various new transactions. There was an interesting array of new deals in June, including the debut of Australian sustainability linked bonds (SLB) with Worley issuing in the EUR market followed by Wesfarmers issuing in the AUD market. We also saw high yield issuance by Avanti and Emeco in the AUD market. Given the strong demand and performance of these deals, we anticipate more SLB and high yield issuance in the AUD market.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-4.pdfMay, 2021
Cash and Short-Term Liquidity Weighting:↑ The allocation to cash, commercial paper and government bonds increased from 22.49% to 23.46%. This was attributed to net inflows which were partly allocated to the corporate and bank capital book as well as into ABS.
Interest Rate Duration Position: ↑ IRD positioning increased to 1.35 from 1.29 years. The slight increase reflects the technical positioning around the Australian 3 year future in addition to complimenting the fund’s core credit exposure. Rates were range bound over the month, however, proposed fiscal expenditure in the US increases the prospect of higher volatility within this market over the medium term. This has motivated us to maintain our reduced exposure.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate and sub debt decreased slightly from 27.82% to 27.67%. Credit markets remained firm during the month, supported by a modest supply of new issuance. Notably, Westpac issued senior unsecured bonds in the USD market, the first benchmark senior unsecured issuance by an Australian major bank in over 12 months. We expect more major bank senior unsecured issuance in the next 3-6 months. We continued to reduce credit duration by rotating into bonds with shorter dated maturities, particularly in AUD corporate bonds. As such, the fund remains well positioned for a modestsell-off in credit markets.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-3.pdfApril, 2021
Cash and Short-Term Liquidity Weighting: ↑ Allocation to cash, commercial paper and government bonds increased from 12.42% to 22.49%. This was attributed by net inflows and profit taking, predominately across corporate and sub debt.
Interest Rate Duration Position: → IRD positioning remained stable at 1.29 years. Interest rate exposure within the portfolio is optimised to compliment the fund’s core credit exposure. Stability in the rates market prevailed over the month, however, proposed fiscal expenditure in the US does increase the prospect of higher volatility within this market over the medium term. This has motivated us to maintain our reduced exposure.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate and sub debt decreased from 41.66% to 27.82%. Following a weak first quarter, Australian credit markets firmed up in April even as the large supply of new AUD corporate issuance continued. We took this opportunity to take profit across AUD corporate and sub debt, in particular, reducing our exposure to Major Bank Tier 2's and to bonds with longer dated maturities. As such, the fund is well positioned for a modest sell-off in credit markets.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-S-2.pdfDecember, 2020
Cash and Short-Term Liquidity Weighting: ↑ Increased to 22.61%. Overall, net inflows were allocated to credit opportunities in corporate and structured credit.
Interest Rate Duration Position: ↑ IRD positioning increased moderately to 1.84 years. Generally we use interest rate exposure for diversification purposes, however at present we are holding a more aggressive position in interest rates as part of our hedging portfolio.
Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate and sub debt decreased slightly to 33.7% from 33.9%. The general Risk-On theme continued well into the month of December driven by central bank support; approvals of Covid vaccines and the electoral college confirmation of the Biden victory. Volatility ended the month where it started – at 22, however, there was a spike prior to Christmas due to concerns over Brexit and a contagious mutation of the Covid virus in England. These market developments presented narrow opportunities in corporate bonds that were capitalised by the portfolio.
Residential Mortgage Backed Securities (RMBS): ↓ RMBS allocation again decreased over the month as the fund took advantage of continued strong performance in the sector, reducing the strategic overweight taken earlier in the year on relative value grounds. While December was a quieter month for new transactions in structured credit, yields once again continued to tighten in public markets. This continues to be driven by three key themes; the strong offshore presence within the Australian market, strong flows into income based products searching for high quality assets with robust yields and the continued view of low asset supply into 2021. Secondary markets remain highly active with only a handful of new issuances over the month as is usually seen with markets leading into the Christmas period.
Additional Tier 1 (AT1) Exposures: ↓ AT1 exposure decreased to 10.96% from 11.81%. Supply/demand dynamics continued to be supportive of the AT1 market over the month. Generally, December is a quiet month for secondary trading and as such no major additions were made in this sector.
Asset Backed Securities (ABS): ↓ Our ABS allocation decreased slightly from last month. Exposures continue to be monitored closely. The sector continues to outperformed expectations through the COVID period, with deferrals comparing favourably versus other more conventional types of risk, such as mortgages. In addition a number of the ASX listed issuers have used the equity market to bolster their capital position putting them in a good relative position to navigate the travails of COVID.
Targeted risk across the Fund: ↑ Targeted portfolio risk increased slightly to 1.66% from 1.63% over the month. Portfolio movements along with movements in individual node data, from a short spike in market volatility, contributed to this increase in risk.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Realm-High-Income-Fund-Update-18.pdfasset_class: Fixed Income
asset_category: Diversified Credit
peer_benchmark: Fixed Income - Diversified Credit Index
broad_market_index: Global Aggregate Hdg Index
manager_contact_details: Array
ticker: OMF0009AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.realminvestments.com.au/category/fund-updates/realm-high-income-fund/
select the related month and year.
fund_features:
Realm High Income – Wholesale’s objective is to deliver a consistent return of approximately 300 basis points over the RBA overnight cash rate through the market cycle. Approximately 75% of the Fund will be targeted at investment grade assets. These are assets which are considered entities and/or securities that have an internal or external credit rating of BBB- or higher. Issuers of investment grade securities are considered to have a strong capacity to meet their payment obligations (although no guarantee can be given about this matter).
structure: Managed Fund